Contracting Out Agreements ("Pre-Nups")

Contracting out agreements, commonly known as "pre-nups" are not the most romantic topic to raise with your partner, but they are an important tool for protecting your asset. Similar to an insurance policy, hopefully you'll never need it, but it's there if you do.

The Property (Relationships) Act 1976: The Property (Relationships) Act 1976 (PRA) governs how relationship property is divided in New Zealand. The general rule is simple: if you're in a qualifying relationship, relationship property is split equally between you when you separate or one of you dies.

 

What counts as relationship property?

Broadly, this includes the family home, vehicles, household chattels, income earned during the relationship, KiwiSaver, and most other assets acquired during the relationship or used for family purposes. Notably, the family home is always relationship property, even if you owned it before the relationship began. Many people are surprised by just how much of what they own falls into this category.

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What about separate property?

Any property outside that definition is "separate property", generally assets you owned before the relationship, or received as a gift or inheritance. However, separate property can become relationship property if it gets mixed with relationship assets, so it's not always a clean line.

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What about trusts?

Trust property isn't directly governed by the PRA, but trusts are no longer a reliable way to shield assets from relationship property claims, courts are increasingly willing to look behind them.

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Are You in a Qualifying Relationship?

The equal-sharing rule applies if you have been:

• Married or in a civil union for more than three years; or

• In a de facto relationship (living together as a couple) for more than three years.

Shorter relationships may still be captured by the PRA if you have children together or one partner has made substantial contributions.

 

Why Enter a Contracting Out Agreement?

The PRA's one-size-fits-all approach doesn't always work for different individuals' circumstances. A contracting out agreement lets you and your partner decide for yourselves how your property will be divided on separation or death, reducing the risk of conflict at what is already a difficult time. It's far easier to have these conversations while you're getting along.

Common reasons people enter into these agreements include:

• One partner enters the relationship with significantly more assets than the other.

• One partner wants to keep certain assets outside the relationship property pool.

• One or both partners have children from a previous relationship and want to ensure those children are provided for.

 

Legal Requirements - Under the Property (Relationships) Act 1976, for a Contracting Out Agreement to be legally binding, both parties must receive independent legal advice from separate lawyers, who must then certify the agreement. This requirement cannot be waived, as you are agreeing to opt out of the default rules that would otherwise apply to your relationship property. A common misconception is that the party whose lawyer did not draft the agreement simply needs to "sign it off." This is not the case, and proceeding without proper independent advice risks the agreement being set aside.

 

 

Key Takeaways

• Under the PRA, relationship property is generally split equally, and the definition of relationship property is broader than most people expect.

• A contracting out agreement gives you and your partner control over how your assets are handled on separation or death.

• Both parties must get independent legal advice before signing.

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Want to know more? Get in touch with Angelique today.